BG5150

Well, fortunately, I don't have to worry about this any more. The prior record keeper did not send us his original employment dates, and it turns out he was 100% vested anyway.

I have a situation where a participant was granted a loan based on 50% of his total account balance, rather than 50% of his vested account balance. It turns out the amount granted was more than half of the vested balance. So, I now have a prohibited transaction. How do I correct this? I think I would just issue a 1099-R for the amount over the 50% vested balance. Then have the ER pay the excise tax on 5330. Anything else?

Plan says ADP test is done using 414(s) comp. Person IS HCE (so him being in the test helps a lot). Plan passes 414(s) test with exclusion of commissions. So, to me, it really comes down to this: Regs say he must be eligible to make a deferral election to be in test. He has been with the company for many years and has long satisfied the service and entry date requirements. So, you would think he is eligible. However, since he is a "commission only" employee and will not get any "regular" salary, and it is explained in the SPD that commissions are excluded for deferral purposes, did he have any real case to make a deferral election? I know it is better to err on the side of caution, especially since he is an HCE, but I want to get this right, because it affects a failing 2006 test and QNECs and/or refunds amounts are on the line, adding up to potentially thousands of dollars. (It affects 2007 testing, too, but just the refunds.)

I am leaning toward INCLUDING him in the test for these reasons: The definition of an eligible EE for the puposes of the ADP test (1.401(k)-6) is someone who is eligible to defer a portion of his compensation for all or a portion of the year. "Eligible employee —(1) General rule . Eligible employee means an employee who is directly or indirectly eligible to make a cash or deferred election under the plan for all or a portion of the plan year." The person in question here was elgiible to make a deferral if he had a regular paycheck (instead of a commissions paycheck). And furthermore, from 1.401(k)-2, the employee's ADR is the employee's elective contribution (plus QNEC's, etc.) "divided by the employee’s compensation taken into account for the year" So, I think I could use his 414(s) compensation (which includes the commissions) with a zero deferral because it says "compensation taken into account," and not just the compensation that was eligible to be deferred. Once again, your thoughts are appreciated.

I have a plan that disregards commissions as compensation for plan purposes. There is one person who has satisfied the eligibility requirements and continues to earn service under the plan, but gets paid 100% on commission. Is he in the ADP test with a zero salary? Or not in ADP test at all?

How does the hourly plan fail coverage if there are no HCE's?

The audit requirement generally starts with 100 participants as the start of a given plan year. So if these season people get terminated before the end of the year, they probably aren't ee's on day 1, so I don't see a problem. Also, if the plan has been filing a Schedule I for the past year, the threshold goes up to 120. Keep in mind, the Day 1 "participants" are eligible participants (with or without acct bals)+ any terminated ee's accounts with balances. This does not include beneficiary accounts or QDRO accounts, but would include an ee who may not be eligible for the plan, but has a rollover balance.

From my good friends at TAG. It looks like it would count in '06. Which is bad news if we are not getting this information until 2008 and the 06 test failed.

Because if the SH is your only contribution other than deferrals, you get a pass on Top Heavy. The regs say the SHNEC has to be AT LEAST 3% don't they? So, I'm guessing as long as the document doesn't say the SHNEC must be 3%, then it's okay to up it to whatever.

I have a participant whose termination date is 12/28/06. That is the last day he worked. The payroll ending date for his last paycheck was 1/5/07. SO he has compensation and deferrals on his 2006 W2. Should he be in the 2007 test? He did not work one single day in '07, and the pay he received was for work in 2006.

We have a plan that didn't submit census data to us for 2006, so we did the 5500 with the info we had on the record keeping system. We have since got the information and found that our participant count changed by about 5 or 6 for questions 6 & 7 on Form 5500. Changing the numbers would not be the difference between filing a schedule I or H. So would you amend the 5500 for a few people? Especially since one year's numbers have no bearing on the next or the filing type?

If you get a letter, send the amended returns. If not, just keep rollin' along.

TAG suggested to do it for 2008 only.

Does the excise tax on late refunds applicable if the plan is also making a 1-to-1 QNEC to satisfy the 2006 ADP test? If so, on what year's 5330 do I report it? '06 or '08? Thanks in advance.

A lot of documents I've seen will define compensation for benefits purposes, but allows the ER to determine an allowable compensation determination (usually 414(s) to be used for the ADP/ACP test. For example: Participant A makes $50,000 in 2007, entered the plan 7/1/07 and made $25,000 after that date. The plan limits deferrals to 10% of participation comp. In this case, the person could only put away up to $2,500 (10% of $25,000). But you could use $50,000 as the comp for ADP test. The corollary would be true, too: plan could limit deferrals to 10% of full-year comp. In this case Participant A could defer $5,000. But you could use $25,000 as the ADP comp. As always, check the plan language to see if you have this option.

Yes, that is what he is wanting to do. There are two methods of correction stated in EPCRS: the one-to-one correction method and the QNEC correction method. Since the plan year in question is 2006, I don't think a QNEC is possible; just to do the refunds and do the 1-1.

So the plan document would have to say something like: "The Employer can choose to limit the deferrals of HCE's if it so chooses" ? But with the absence of such language, I would think it could not limit them (the HCE's), and certainly not an individual HCE's and not others.

Is the plan using prior year testing? If not, I don't think the ER can legally do that, unless the plan is amended to hold all HCE's to x%. The company can recommend that the deferrals are reduced, but cannot mandate it.

If it's within 2 years, can't you just self-correct using the guidelines set forth in EPCRS?

Yet he would be counted in 7g. And as long as his account is not the difference between a large and a small plan filing, I wouldn't worry about it too much.

Maybe. Some plans call for re-satisfying the service requirements if the person incurs 5 consecutive one-year breaks in service. Also, if the break is only a few weeks, maybe using the prior election might be valid.

The answer I got from TAG is that if there is less than 9 months left in the plan year, the employer must make the contribution at the end of the year, after the ADP is known.

Not always. There are plenty of pooled separate accounts and other investment vehicles that do not have publicly available returns. And I thought freeerisa just had past filings and some company info.

See EPCRS, Appendix B, Section 2.02. Sieve was correct. You will have to wait until 2009 until the employer makes the contribution for the missed deferral (and, thus, the missed match), since you have to wait until the ADP test is run. There is also a section on correcting a safe harbor plan. Here is EPCRS: http://www.irs.gov/pub/irs-drop/rp-06-27.pdf

My thoughts would be to reset it to zero.